Tag Archives: Recession

A Keynesian Nightmare: Saving Money Helps Shorten Recessions

There’s a popular notion in Keynesian economic theory known as “The Paradox of Thrift (or Saving).” Since Keynesian economics focuses on Gross Domestic Product (GDP) — which is, frankly, a measurement of spending — saving money is paradoxical because it lowers GDP due to consumers not spending it.

The reason why economists care so much about GDP is because it’s an important indicator of where the economy is in a business cycle (boom or bust). When GDP constantly drops for a period of time, this is known as a recession. How exactly does saving money help shorten a recession?

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